What Deficiencies Are In Your Commercial Insurance Program That You Don’t Know About?

All businesses face risks and as a business changes so do the associated risks. As a Maryland Senior Risk Advisor, I cannot express enough the importance of reviewing your commercial insurance policies each year. Reviewing your insurance policies with a trusted insurance advisor will help you to identify where your business insurance program may have some gaps or inadequate coverage. After working in risk management for the last 35 years, I’ve found that among many others, there are six common, more frequent insurance deficiencies.

1. Inadequate business description on policies. This is the most common deficiency we find when reviewing insurance programs and can lead to gaps in coverage. Make sure you discuss with your insurance advisor the future of your business and how it is changing so that nothing gets overlooked and the appropriate descriptions are used.
2. All legal entities are not insured. Failing to list all business entities on an insurance policy is another very common insurance deficiency. A typical situation occurs when a business owner owns the building and leases it back to their business. When there are different legal names for the building and the business and they are insured on the same policy, if both legal entities are not named Insureds on the policy – there will be a coverage gap. Another common situation exists when employee benefit plans and 401(k) retirement plans are formed, as these are separate legal entities from the business. Either the benefit plans should be listed on the policy or the built-in insurance policy language has to extend coverage automatically in order to guarantee they are insured.
3. Business operations insured under non-concurrent policy dates. Some business owners or executives may choose to stagger renewal dates for cash flow purposes. We often find this approach leads to people not spending the time to review their coverage in its entirety which increases the likelihood of a gap in coverage or inadequate coverage. Consider having all your policies renew at the same time to increase coordination, save time and ensure better continuity of coverage. You will also save time and effort with your insurance certificates if you choose concurrent policy dates.
4. No Coverage for sub-contractors. If you employ sub-contractors or 1099 employees, make certain that their actions on your behalf are not excluded by your insurance policy.  This is even more important if you have any specialty liability insurance policies, because specialty policies include unique terms and conditions.  You can generally identify a specialty liability policy by its title.  Common examples are titles that say Errors & Omissions, Professional Liability, or Employment Practices Liability Insurance.
5. Inadequate insurance limits. We see companies of all sizes who do not have adequate limits in place to protect their assets and help their business return to profitability after a major loss. Working with your insurance advisor and taking the time to create a business continuity plan that identifies your risks and the steps needed to be operational after a loss is invaluable.  FEMA and several major insurance carriers, such as Chubb and Travelers, cite inadequate business continuity planning, including inadequate insurance coverage, as one of the leading reasons businesses fail after a disaster or a major loss.  For example: a restaurant that experiences a major fire can experience permitting and reconstruction delays that end up causing it to lose customers to a competitor.  In this situation, the restaurant may need extra time after they rebuild to entice their customers to come back.
6. Not considering your specialty liability exposures.
   1. No Cyber Liability: If you have a website then you have a cyber exposure and if you collect or store client data or handle any sort of electronic payment on your site, the exposure increases. Traditional insurance programs do not adequately address this and you need to make certain you have the necessary policy in place to protect your business from cyber liabilities.
   2. No miscellaneous Errors & Omissions (E&O): If your business product is a service, such as bookkeeping, IT consulting, or business management consulting, then you face claims that can develop because of unhappy customers. These types of claims are usually not covered by a standard business owner policy.

In Conclusion

While these are six of the most common insurance deficiencies, there are others that could occur if a proper insurance review is not conducted on an annual basis. If you have any questions or concerns about your commercial insurance policies, please contact fgiachini@psafinancial.com.